The Value of Social Capital for the Success of SPAC IPOs

Abstract

This paper explores the role of social capital in contributing to the success of a new breed of organizations known as ‘blank check companies’ or special purpose acquisition companies (SPACs) that are set up solely to target and acquire listed companies as a fast-track route to gain listing status in the stock market. The paper is a case study of Pershing Square Holdings Ltd., St. Peter Port, UK (PSH), which launched SPAC IPOs (Initial Public Offerings), Pershing Square Tontine Holdings Ltd., New York, NY, USA (PSTH), which succeeded in raising the largest capital from influential investors in 2020. Social capital theory is employed to provide theoretical structure for the analysis. Using annual reports, publicly available information on the internet, as well as social media platforms related to the company and its strategy, the authors critically analyse and highlight how the Tontine’s founder and his team utilized their structural, relational, and cognitive social capital to attract investors and gained recognition as the most successful SPAC IPO in the market in 2020. The authors found the ability to structure a SPAC IPO that departs from a typical SPAC, and the choice of timing to enter the SPAC market resulted in an over subscription and higher market valuation ratings of its IPO, as well as allowed the sponsor to be selective of its investors. This is the first study to address the significance of social capital at the individual and organizational level in creating value for SPAC IPOs. Potential investors can gain understanding and insights on the mechanics of SPAC IPOs and the importance of the founder’s social capital in ensuring successful investment. Successful SPAC IPOs will create interest in the marketplace and enhance the value of investment for investors and helped private companies to get listed faster.